ECommerce: Concepts & Technologies Lecture: Prof. Dr. Ralf Möller (r.f.moeller@tuhh.de, office hours, Fr. 2-4 pm) Lab classes: Michael Wessel TU Hamburg-Harburg, Software Systems Group Lab classes: Location: HS 20 Room 021 / Time: Mon 10:45 am – 11:45am Copyrights for large parts of the presentations: Prof. Dr. F. Matthes, Prof. Dr. J.W. Schmidt, P. Hupe http://www.sts.tu-harburg.de/teaching > Ecommerce

Web Support / Literature http://www.sts.tu-harburg.de/~r.f.moeller/lectures/ec-ws-05-06.html many, many more ... References in brackets [...] (see web page or additional material for this lecture)

Learning Objectives Students will be able to understand and evaluate fundamental and advanced Internet and software technologies relevant for EC, describe, identify and classify EC applications and systems, classify and identify existing and emerging EC business models. The lab classes strengthen the understanding of these concepts through hands-on experience with selected EC technologies and commercially relevant systems.

Rules of the Game Written exam at the end of the semester  2 credits (IMT) Exercises  1 credit (IMT). Regular attendance & successful solution of the tasks in time (one week). Task 1 handed out Task 2 handed out Mon Today: lecture Wed Thu Fri Mon: lab Tue: lecture Wed Thu ... Fri time Solution 1 returned

1. Introduction and Overview 1.1.1 ECommerce: Definition 1.1.2 Commercial Opportunities on the Internet 1.1.3 Basic ECommerce Models 1.2 Outline and Overview over the Lecture

What is ECommerce? Definition Electronic Commerce is the sale and procurement of supplies and services using information systems technology [NoWeGa00]. Related concepts and terminology of different perspectives: Consumer  Customer  Buyer  User Producer  Performer  Seller / Merchant  Provider Product  Service  Supply  License tangible goods e.g. information retrieval e.g. intermediate products soft goods e.g. programs, music

Development of ECommerce The „3 waves of ECommerce“ [Keenan]: Put marketing information on the web Allow online order taking Construct electronic exchanges Differentiation: Evolution of ECommerce at large Evolution of ECommerce in a particular company

EC at large vs. EC in a company Development of ECommerce at large: Steps of ECommerce development Search Engines Internet Browsers Content Shops Market- places Development of ECommerce in a particular company: What part of a company is involved in ECommerce? Marketing information Order taking Electronic exchanges

Electronic Business: Terminology (1) Overview of electronic business terminology: e-business: Generic term for all internal and external business processes of a company. Coined by IBM in 1999. Structured into e-commerce, e-cooperation and e-information. e-commerce: Electronic marketing and trading of goods and services over the Internet. Within e-business, e-commerce is the driving force. e-cooperation: Business models that support the cooperation of business partners, e.g. virtual enterprises, supply chain management (SCM) and customer relationship management (CRM). e-information: Mainly addresses the procurement and delivery of information (e.g. digital libraries and web portals).

Electronic Business: Terminology (2) Electronic business terminology continued: e-procurement: Electronic purchase of raw materials, semifinished goods and components (normally in large quantities). Requires an integration of company’s ERP system with suppliers’ ERP systems. Part of e-cooperation. e-government: Provision of governmental and official processes over the Internet for residents, usually administrative processes, e.g. tax return, change of address. Exchange of electronic data between different authorities for the acceleration of official processes. The lecture will focus on e-commerce aspects, and will also give insight into e-cooperation and e-information topics.

Commercial Opportunities on the Internet (1) Effects of the Internet On Commerce [Rappa02]: Disintermediation / Reintermediation Frictionless Commerce Dynamic Pricing Personalized Marketing

Disintermediation Definition Shortening the value chain, especially concerning soft-goods (music, software, ...) [Merz99]. Lowers customer prices: Get products cheaper.  Reduces costs for producers and customers. Mediators Producer Wholesale dealer Retailer Consumer Disintermediation Internet Producer Consumer

Reintermediation Definition Adding trading partners (brokers) to a value chain as filters / selectors. Brokers select products / producers: Find better / more suitable products.  Increases quality of service. How to connect ??? Producer Consumer (Re-)intermediation broker pro broker Professional consumers Producers broker broker Private consumers home broker Examples: Photograph brokers (CORBIS, Gettyone)

Commercial Opportunities on the Internet (2) ECommerce is viewed as a possibility for enabling Frictionless Commerce [Rappa02]. Causes for friction in traditional commerce are costs: Costs of finding partners Costs of gathering information Costs of establishing trust In a frictionless economy everyone has perfect information at any time (e.g. about all potential trading partners, products, offers, etc ). NOTE: This is a claim of economical theory! Dynamic Pricing Prices adjust to exactly balance supply & demand (can be realized in e.g. auctions, see chapter 2) [Rappa02]

Commercial Opportunities on the Internet (3) Personalized Marketing (1:1 Marketing) Any seller’s offers, ads, incentives are customized and personalized to each customer  single seller – single buyer relationship. Seller is supported by Customer-Relationship-Management Software (CRM), see chapter 5. Virtual Communities (Global / local) communities of people who share an interest or get together to act as a single economical player. Communities of Interest Buyer Communities (get reduced prices by ordering large quantities of products)

ECommerce Reference Model (2) Applications for horizontal and vertical sectors (7) Organi- zational issues (6) Virtual Organizations (2) Kinds of Cooperation Electronic Trading Systems (4) Political and Legal Aspects of EC Business Process Reengineering (BPR) Tools Forms of Payment Security, Trust Transact. Control Agent Technlgy Mediation, Negotiation EDI (5) + (6) Technical issues Base Technologies (Internet-, Communication-, Security-, DB-, Software-Technology) (3) [MeTuLa99]

ECommerce Transactions 4-Phase Model 1. Request 2. Negotiation Dealer Performer Seller Shop Consumer Customer Buyer 4. Feedback 3. Performance 1st phase: Customer finds a business partner 2nd phase: Customer and performer negotiate and finally commit transaction details (products, quantity, quality); commit might include payment

ECommerce Transactions 4-Phase Model 1. Request 2. Negotiation Dealer Performer Seller Shop Consumer Customer Buyer 4. Feedback 3. Performance 3rd phase: Performer carries out the service / manufactures and delivers the goods 4th phase: Customer gives feedback; pays for the service / for the goods Feedback is important for long-term positive customer relationship Payment: Depending on the business model, payment might be moved to end of 2nd phase (pay before performance) or to the end of 4th phase (pay after delivery)

ECommerce Transactions 4-Phase Model 1. Request 2. Negotiation Dealer Performer Seller Shop Consumer Customer Buyer 4. Feedback 3. Performance Structure: An electronic transaction phase itself might be composed of subordinated electronic transactions.

Business to Customer (B2C) Examples: Online – Shops (Amazon, BOL, etc.) Local services (e.g. traffic information service) News, publication services Request Negotiation Enterprise Software System Private Person Feedback Performance

Business to Business (B2B) Examples: Supply chain Electronic procurement Vertical industry tendering and bidding systems (e.g. in the maritime industry) Employee Employee Request Negotiation Enterprise Software System Enterprise Software System Feedback Performance

Business / Customer to Administration (B2A / C2A) Employee Request Negotiation Private Person Adminis- tration Enterprise Software System Feedback Performance Examples: Paying taxes & fees Change of address Licenses

Electronic Payment Payment: Typical clearing and settlement process between a customer, performer and the customer‘s bank. Naive view: Consumer Customer Buyer Dealer Performer Seller Shop 2. Pay / Authorize Payment 1. Deposit 3. Encash Arrows indicate communication direction Customer’s Bank

Lecture Outline and Overview 1. Introduction and Overview ECommerce: Definition, buzzwords, expected benefits, ... 2. EC from a Business Perspective A Taxonomy of EC Business Models Standards and Frameworks: ebXML, RosettaNet 3. Web- and Software Technologies for Enabling of EC 4. Selected Products, Frameworks, and Systems for Business to Consumer Transactions 5. Concepts and Technologies for Business-to-Consumer Transactions 6. Concepts and Technologies for Business-to-Business Transactions 7. Legal Aspects of ECommerce

2. EC from a Business Perspective Applications for horizontal and vertical sectors Organi- zational issues Virtual Organizations Kinds of Cooperation Electronic Trading Systems Political and Legal Aspects of EC Business Process Reengineering (BPR) Tools Forms of Payment Security, Trust Transact. Control Agent Technlgy Mediation, Negotiation EDI Technical issues Base Technologies (Internet-, Communication-, Security-, DB-, Software-Technology) [MeTuLa99]

Further Reading / Acknowledgments Most of the following is taken as is from the ecommerce lecture of Michael Rappa [Rappa02a]. Michael Rappa, Business Models on the Web: http://digitalenterprise.org/models/models.html

Business Models Current business models are: Advertising Model Affiliate Model Broker / Brokerage Model Community Model Infomediary Model Manufacturer Model Merchant Model Subscription Model Utility Model Some of these business models are still successful, whereas other have not proven to be accepted by Internet customers.

Business Models: Advertising Model Extension of the traditional media broadcasting model The broadcaster, in this case, a web site, provides content (usually, but not necessarily, for free) and services (like e-mail, chat, forums) mixed with advertising messages in the form of banner ads. The banner ads may be the major or sole source of revenue for the broadcaster. The broadcaster may be a content creator or a distributor of content created elsewhere. The advertising model only works when the volume of viewer traffic is large or highly specialized. Specializations: Portals: Generalized Portal Personalized Portal Specialized Portal Classifieds Query-based Paid Placement Contextual Advertising Bargain Discounter

Advertising Model: Generalized Portal High-volume traffic, typically tens of millions of visits per month, driven by generic or diversified content or services. Competition for volume has led to the packaging of free content and services, such as e-mail, stock portfolio, message boards, chat, news, and local information. Examples: Search engines and Web catalogs like Excite (www.excite.com), AltaVista (www.altavista.com), Yahoo! (www.yahoo.com). Content driven sites like AOL (www.aol.com). The high volume makes advertising profitable and permits further diversification of site services. www.yahoo.com

Advertising Model: Personalized Portal The generic nature of a generalized portal undermines user loyalty. This has led to the creation of personalized portals that allow customization of the interface and content. This increases loyalty through the user's own time investment in personalizing the site. The profitability of this portal is based on volume and possibly the value of information derived from user choices. Personalization can support a "specialized portal" model. Examples: My.Yahoo! (my.yahoo.com), My.Netscape (my.netscape.com). my.netscape.com

Advertising Model: Specialized Portal Also called a "vortal" (i.e., vertical portal). Here volume is less important than a well-defined user base (perhaps 0.5 - 5 million visits per month). For example, a site that attracts only young women, or home buyers, or new parents, can be highly sought after as a venue for certain advertisers who are willing to pay a premium to reach that particular audience. Example: iVillage.com (www.ivillage.com). www.ivillage.com

Advertising Model: Classifieds List items for sale or wanted for purchase. Listing fees are common, but there also may be a membership fee. Examples: Monster.com (www.monster.com) and Match.com (www.match.com). www.monster.com

Advertising Model: Query-based Paid Placement Sell favorable link positioning (i.e., sponsored links) or advertising keyed to particular search terms in a user query, such as Overture's trademark "pay-for-performance" model. Example: Google (www.google.com), Overture (www.overture.com). www.google.de

Advertising Model: Registered Users Content-based sites that are free to access but require users to register (other information may or may not be collected). Registration allows inter-session tracking of users' site usage patterns and thereby generates data of greater potential value in targeted advertising campaigns. Example: NYTimesDigital (www.nytimes.com). www.nytimes.com

Advertising Model: Contextual Advertising Freeware developers which bundle ads with their product. For example, a browser extension that automates authentication and form fill-ins, also delivers advertising links or pop-ups as the user surfs the web. Contextual advertisers can sell targeted advertising based on an indivdual user's surfing behavior. Example: Gator (www.gator.com), eZula (www.ezula.com). www.gator.com

Advertising Model: Bargain Discounter The most notable example is Buy (www.buy.com), which sells its goods typically at or below cost, and seeks to make a profit largely through advertising. www.buy.com

Business Models: Affiliate Model In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, the affiliate model provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point click-through to the merchant. It is a pay-for-performance model -- if an affiliate does not generate sales, it represents no cost to the merchant. The affiliate model is inherently well-suited to the web, which explains its popularity. Variations include, banner exchange, pay-per-click, and revenue sharing programs. Potential problems loom ahead that may inhibit the diffusion of the affiliate model due to the granting of a broad patent to Amazon.com. . www.amazon.com

Business Models: Brokerage Model Brokers are market-makers: they bring buyers and sellers together and facilitate transactions. Those can be business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer (C2C) markets. A broker makes its money by charging a fee for each transaction it enables. Brokerage models can take a number of forms. Specializations: Auction Broker, Reverse Auction (Demand Collection System) Marketplace Exchange Buyer Aggregator Search Agent Business Trading Community or Vertical Web Community Virtual Mall Buy/Sell Fulfillment Distributor Bounty Broker Transaction Broker